Time for Plan B after IMF and World Bank failures?

In the aftermath of a financial crisis in the eurozone as well as the obvious fiscal negligence by the US, Africa is compelled to assess the extent to which regulatory watchdogs, particularly the IMF, have upheld even levels of restraint.

As recipients of loans from the IMF and in the wake of apparent self-inflicted fiscal catastrophes in the US and Europe, Pan-Africanists are compelled to assess if in their opinion, all the checks and balances for avoiding such situations are well in order and have been abided by.

We should inquire if the IMF has satisfactorily exercised its mandate as the watchdog of the global financial sector.

The IMF was born in 1944 with the mandate to provide global financial stability as well as ostensibly to back the global war on poverty.

The IMF has been a vehicle for loan assistance to Africa and it has prescribed Structural Adjustment Programmes as a condition to its loans.

These Structural Adjustment Programmes are meant to be strictly adhered to, with the IMF saying doing so makes loan repayments realisable and increases economic output from the borrowing countries.

So why is it that just about all countries that have been prescribed structural adjustment do not emerge better off and very quickly abandon the strings attached to the loans?

The reason of the poor nations absconding from these programmes is the adverse impact these have on the overall standard of living of their citizens.

It is not only African countries that have experienced the bitter taste of the IMF’s economic prescriptions, as the majority of the Third World – particularly East Asia, Russia and Latin America ‑ have also fallen victim to these economic policies.

The emerging markets in Latin America had crises in the late 1990s, as a result of the economic policies prescribed by the IMF.

In 2001, Argentina fell into deep recession after it had pegged its currency, the peso, on a fixed scale and borrowed excessive loans from the IMF to sustain this overvalued currency.

This artificial system crumbled to the ground as Argentina did not have the reserves to back such an exchange rate regime and the austerity measures that where prescribed by the IMF sparked a series of protests and riots across the country.

Even in the early 1990s, inconsistencies in the economic programme for Argentina were noted within the IMF but the programme was still implemented and presented to the world as watertight.

This is also the case with Greece.

It is fortunate that this time around the staff at the IMF have come out publicly with their findings that the prescriptions were harmful and we have seen the resignation of senior economist Peter Doyle in June 2012 owing to his dissatisfaction on the way the Fund has managed Greece.

The senior economist noted that the eurozone crisis could have been avoided if the IMF had heeded advice from economists on the state of affairs in Greece.

The IMF could have urged for a restructuring of Greece’s debt and this could have yielded an earlier recovery of the eurozone crisis.

According to Peter Doyle, “The failure of the Fund to issue (warnings) is a failing of the first order.”

The manner in which the IMF has been conducting its programmes and granting loans reflects an apparent European bias.

In as much as we would not rush to profess a pro-European agenda by the IMF, a mere look at who holds the post of the Fund’s managing director compels us to at least suspect a bias and that developing countries are getting the short end of the stick.

The post of MD of the IMF has been held in reserve for European Union countries for over 70 years now.

In 1946, Cammille Gutt from Belgium was the top dog at the IMF’s inception and this post has only rotated among the European community. Recently we saw Christine Lagarde, a Frenchwoman, assuming this post from Frenchman Dominique Strauss-Kahn.

Such a seemingly biased leadership has seen the fund extend lending to European countries without exercising the same due diligence that would normally be applied to developing countries.

Greece could have been cautioned in 2004 when the government spent approximately US$14 billion in the construction of new stadiums for the Olympics in Athens.

Such expenditure can be regarded as non-productive as most of the stadiums in Athens today lie idle and demand high maintenance costs.

What has been the case with Africa and the IMF?

African countries have indeed been receiving loans from the IMF for infrastructure development, mining and industrial output.

But strict conditions apply to access this money; such as downsizing the civil service, cutting social spending and privatising just about every economic sector. That is not all.

Since the turn of the millennium, countries have been pressured to incorporate genetically modified (GM) crops into their agricultural sectors.

This came without the input of our own independent scientific researchers who can well-advise on the impact of GM crops on our agricultural sectors as well as on the health of humans and animals consuming such produce.



Under such circumstances, we must ask questions like:



·   Where are the IMF and World Bank when the US over-borrows from the private sector to fund its fiscal anxiety?



·   Where are the IMF and  World Bank regulators when Greece overspends and borrows loans that its economy cannot sustain?



Would we be wrong to conclude that when it comes to the West, the IMF gives those countries a long rope; and when it comes to Africa and the rest of the developing world, the IMF puts a loaded gun to our heads?

If that is the case, surely an alternative to the Bretton Woods institutions is long overdue.

• Gift Mukototsi is a financial analyst based in Windhoek, Namibia. He can be contacted on giftmukototsi@gmail.com